Aside from calling a lendor, (i have a great one BTW), here is the breakdown on an FHA loan. Understand that there may be other variables involved, but this will get you in the area at least :O)
I work with many many clients who start the process of buying a home unsure of what to expect for qualifying for a payment and how much house they can afford. For simplicity, I will take and FHA loan and look at a couple of scenarios.
First is a standard loan for an employed buyer (not self employed). The guidelines are:
â—¦total debt to income ratio can not be more than 50% of gross income
â—¦total mortgage payment including taxes and insurance can not be more than 34% of your adjuststed income.
Debt to income ratio is the amount of all of your bills combined against what you make. So any car payments, credit card bills or loans will count against what you can purchase.
What does this mean? well, if you make $36,000.00 a year which is $3000.00/mo, that means that you can afford up to $1500.00/mo for a total debt to income ratio. If you havea car payment of 250.00 and a student loan of $100.00 and a credit card to $50.00 then your mortgage payment amount would be the remaining which would be $1100.00. the problem with this is that if you take $1100.00 and divide it by $3000.00 you get a percentage of .36 or 36%; meaning your payment is to high for what you make based on FHA guidelines. In this scenario, in order for your ratio's to work, you will need to take $3000.00 and mulitiply it by .34 and that will give you what FHA will allow you to finance and in this case it would be roughly a mortgage payment of $1020.00/mo.
For Self employed persons, everything above is the same, except that the ratios are based on Adjusted Gross Income or AGI. Because of tax breaks and claimed expenses, a self employed person is based on an After tax number rather than on an gross number. What this means is that if you are self employed and show a gross income of say $100,000.00 a year and you take all of your tax write offs and expenses that you are allowed to take, and you show an AGI of $36,000.00, then that is going to be your number that the lenders are going to look at. For People who are self employed, even if they make the substantially more than the employed person, the lenders look soley at the bottom line.
If you figure 10% of the cost of the home as your payment amount, then use the guidlines abouve, you should be able to get pretty close to what you can afford, conservatively.
Roy D. Barker, Jr.
PADI Course Director 199390
(786)863-7764 Direct Line
(239)848-7773 Assistant Direct
A member of Sandals Realty
I hope my answer helped you.
Who doesn't qualify for an FHA loan? The loan program is designed to help out pretty much everybody. Here is a blog about FHA, which used to require only 3% down payment, but that was 9 months ago...
best of luck in your real estate purchase.
Roy Barker's response is very helpful.
To clarify, your housing costs for the principal, interest, taxes, insurance and any homeowner's association fee ("PITIA"), should not exceed 31% of your monthly gross income before taxes. However, there is also an FHA mortgage insurance premium ("MIP") charged monthly of 115 basis points or 1.15% that is added to your monthly payment if your down payment is less than 5% of the purchase price. Example, a 4.5% fixed rate for 30-years becomes 5.65%. MIP is lower if your down payment is higher or term is does not exceed 15 years.
The other ratio, PITIA plus any minimum credit card payments and installment loans (typically auto loans and school loans), should not exceed 43% of your average gross monthly income.
Your middle credit scores -typically there are 3 scores, one from each of the three credit agencies- for each borrower whose income is being counted to qualify for the loan should be at least 640 for most lenders. There are some who will review a lower middle credit score.
You should be able to show sufficient savings or assets from which you can withdrawal funds to cover your down payment and closing costs. An immediate relative could gift you some of the funds needed to qualify for obtaining a mortgage.
Working with an experienced Realtor and lender will enable you to determine a strategy for making a purchase offer, which considers an expected seller concession of around 3% of the purchase price to help you defray non-recurring closing costs and/or buy down the interest rate.
I am happy to review your situation to see the amount for which you qualify and your comfort level with what you are willing to pay and to obtain a pre-approval with which your Realtor can work.
Licensed Mortgage Loan Originator
The most accurate way to find out is to visit a mortgage banker or speak to a mortgage broker. They will go through your credit, income, assets, and debts and give you a pre-qualified loan amount. Being that it is the weekend you can go to our website http://www.GaryLisa.com and click on "How much can I borrow". This is a calculator that can help you with the answer. Once you get a rough idea, you can also use our FREE MLS search to look for homes. Let us know or drop us an email and we can help you find your dream home!